Ocado shares fell to a fresh low on Monday after the internet grocer issued a profit warning that it blamed on growing pains at its hi-tech warehouse.

Plans to increase the capacity of Ocado's distribution depot in Hatfield, Hertfordshire, were behind schedule and the retailer said hiring extra staff to handle orders had affected profitability. The company, which delivers Waitrose groceries, now expects earnings for the year to the end of November to be about £28m, compared with the £34m previously pencilled in by analysts.

Jonathan Pritchard, an Oriel analyst, described it as a "major downgrade" and said he did not expect the company to make a profit at a pre-tax level for another two years.

The slowdown experienced by the company in the fourth quarter was "eye-watering", he said, with quarterly growth slowing from 17% to 10%.

"Our view is that customers have finally got cheesed off by the declining service standards here. Clearly more orders are having to be picked by hand than was initially planned, and this technological breakdown has persisted much longer than even the bears feared."

Founded by three former Goldman Sachs bankers, Ocado has had a difficult start to life as a listed company. Its shares, which debuted at 180p last summer, dropped to 123.5p in October 2010. They had climbed back to 285p by February this year but have since fallen back again and closed down nearly 17% at 59.2p.

Analysts argue Ocado, famous for its green-liveried vans, is being outflanked by larger rivals such as Waitrose, which has launched a competing service. Some are also sceptical about its centralised base in Hatfield. The model differs from supermarket rivals that fulfil internet orders by dispatching items from the shelves of local stores. Clive Black, analyst at Shore Capital, said: "Maybe it's just the case that Ocado has a flawed business model with an over-invested centre and extravagant distribution costs."

The Ocado chief executive, Tim Steiner, said the profit warning was due to warehouse issues, not tougher competition. "This is not about us versus anyone, this is about us versus ourselves. We are working furiously hard." Steiner said the company was making progress but was "disappointed that we did not achieve as large or as early an increase as we had originally planned."

Ocado is spending £85m on Hatfield by adding, among other things, 5km of conveyor belt. By the end of November it was supposed to be able to handle up to 140,000 orders a week but the highest number of orders processed last month was 131,381. A second phase, which will take another year, should enable it to process an additional 40,000 orders, taking the total to 180,000.

The retailer is also investing £210m in a second distribution centre, which will open in Dordon, Warwickshire, at the end of 2012. Steiner said work was "on time and on budget".

Ocado achieved annual sales for the year to 27 November of £643m but with two distribution centres running in 2013 will able to turn over £2bn sales. Analysts at RBS cautioned, however, that "visibility remains limited in terms of how quickly and how cost effectively Ocado will be able to ramp up the order flow."